Mexican bakery giant Grupo Bimbo reported a massive 87% second-quarter revenue decline after it took a 1,960m pesos ($105m) charge for a voluntary redundancy program to create a ‘lean organization design.’

The company posted a net profit of 195m pesos ($10m) in the second quarter ended June 30, down from 1,497m pesos.

Following the voluntary redundancy program, the company’s US division sustained an operating loss of 213m pesos ($11.4m), a marked reversal from an operating profit of 2,272m pesos in the same quarter of 2017.

Great agility

According to Fred Penny, president of Bimbo Bakeries USA (BBU), the program was “an important part of our transformation.​

“The completion of this program will help increase cash flow and improve profitability, as it has a payback of less than two years,”​ he said.

“Furthermore, a leaner, stronger and less complex organizational structure allows us to respond to new opportunities with greater agility.”​

The $105m charge represented associate severance and benefits to the BBU staff – around 600 people – who opted for voluntary separation.

Penny said benefits from the program will accrue in the third quarter.

Other factors affecting profitability were the costs of integrating acquisitions and pressure from commodity and energy inflation in North America.

“Like many other industries, we’re certainly feeling the effects of a much tighter labor market,”​ said Penny.

“It manifests itself in longer recruitment time to fill positions, and it’s just something that we’re going to have to deal with.”​

Continued acquisition drive

Conversely, Bimbo reported an 8% sales increase in Q2 to 36,903m pesos ($1,9m) from 34,204m ($1.83m)pesos in the same period last year.

Revenue also rose, by 11% to 72,417m pesos ($3.8m) versus 65,115m pesos ($3.48m) in the same period a year ago, mostly due to strong volumes in Mexico and recent acquisitions.

The company completed the purchase of Mankattan Group, a major baking company in China, in June for an undisclosed amount.

“Not only does the addition of Mankattan strengthen our presence in the country, it also provides us with a platform to grow the market of branded packaged baked goods, as well as the food service channel throughout China. This is a vital growth market for us and an acquisition that bolsters our global profile,” ​said Daniel Servitje, Bimbo’s chairman and CEO.